Price transmission and cost pass-through on the German dairy value chain

Thomas Bittmann and Jens-Peter Loy
Additional contact information
Thomas Bittmann: Christian-Albrechts-University at Kiel, Kiel, Germany
Jens-Peter Loy: Christian-Albrechts-University at Kiel, Kiel, Germany

Journal of New Economy, 2021, vol. 22, issue 3, 84–102

Abstract: The formation of value chains is among the central issues in the development of the global trade. This study sheds light on the various price relationships and extends the existing literature on vertical and horizontal price transmission by investigating the causal structures on international dairy markets and their relationships with national wholesale and retail prices in Germany. Methodologically, the study is based on the law of one price, which states that identical goods should have identical prices. Price dynamics are modelled with modern panel and time series models that cope with non-stationary variables. The analysis employs store-level retail scanner data and prices for major international skim milk powder and butter markets. The results suggest that world market prices lead German wholesale prices, which pass on to farmers and retailers. Private label retail prices closely follow the price developments of standard milk products on the world markets. Manufacturer brands product prices deviate from world market trends. At the producer level, raw milk is an almost homogeneous product. The price of raw milk strongly correlates with international skim milk powder and butter markets. Processing creates a multitude of different products. At the retail level, we observe thousands of different products and brands; thus, the complexity of price relationships vastly increases towards the end of the value chain, which enables firms to pass on idiosyncratic costs or to generate extra profits.

Keywords: market development; price transmission; cost pass-through; international dairy market; food retail; EU; Germany (search for similar items in EconPapers)
JEL-codes: D40 L11 Q17 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://jne.usue.ru/images/download/92/5.pdf (application/pdf)
http://jne.usue.ru/en/issues-2021/1037 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:url:izvest:v:22:y:2021:i:3:p:84-102

DOI: 10.29141/2658-5081-2021-22-3-5

Access Statistics for this article

Journal of New Economy is currently edited by Yelizaveta A. Belousova

More articles in Journal of New Economy from Ural State University of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Victor Blaginin ().